Lessons in Building a Company in Partnership with Private Equity

In simple terms,” said Donald Burdick, CEO and co-founder of Olifant Energy, LLC, “you can view partnering with a private equity firm as a way to partner with many investors under one large aggregator.”

Burdick will speak at the North American Prospect Expo (NAPE) Summit in Houston this month, presenting, “Building Your Company in Partnership with Private Equity: My Lessons Learned.”

It is that last part which may be of most interest.

More on that in a moment.

On the most basic level, private equity firms reach out to many investors for their funds and then turn around and deploy that capital among their portfolio of companies.

“This approach,” said Burdick, “mitigates risk for the investors and it simplifies the financial reporting for the portfolio company.”

Attention to Detail

Burdick’s 35-year career has included a variety of technical and managerial experiences that began as a prospecting geologist for Marathon Oil in 1984. He has also served as the vice president of geology and new ventures at Panther Energy II, a Kayne Anderson portfolio company that began in September 2013 and sold for $863 million in January 2017. He co-founded Olifant Energy, an EnCap portfolio company, in June 2017.

Burdick, clearly, has been around the block a few times – 80 acquisitions in 30 different basins to be exact. He knows both the rewards and the pitfalls of funding with private equity.

In simple terms,” said Donald Burdick, CEO and co-founder of Olifant Energy, LLC, “you can view partnering with a private equity firm as a way to partner with many investors under one large aggregator.”

Burdick will speak at the North American Prospect Expo (NAPE) Summit in Houston this month, presenting, “Building Your Company in Partnership with Private Equity: My Lessons Learned.”

It is that last part which may be of most interest.

More on that in a moment.

On the most basic level, private equity firms reach out to many investors for their funds and then turn around and deploy that capital among their portfolio of companies.

“This approach,” said Burdick, “mitigates risk for the investors and it simplifies the financial reporting for the portfolio company.”

Attention to Detail

Burdick’s 35-year career has included a variety of technical and managerial experiences that began as a prospecting geologist for Marathon Oil in 1984. He has also served as the vice president of geology and new ventures at Panther Energy II, a Kayne Anderson portfolio company that began in September 2013 and sold for $863 million in January 2017. He co-founded Olifant Energy, an EnCap portfolio company, in June 2017.

Burdick, clearly, has been around the block a few times – 80 acquisitions in 30 different basins to be exact. He knows both the rewards and the pitfalls of funding with private equity.

“An overarching lesson is that spending a large part of your evaluation time on the technical details of any acquisition is time well spent,” he said.

And this is because financial models can characterize a wide range of outcomes, many of them attractive, but the successful entrepreneur looks beyond the gloss and early infatuation.

“It is the detailed technical understanding of an asset that will give you the greatest chance to minimize your downside risk while optimizing your upside potential,” he said.

Respect the Capital

The problems, he said, when building a company in partnership with private equity, are two-fold.

“One could be failing to understand the critical responsibility of the private equity firm to their investors, and your company’s role in that relationship,” Burdick said.

Usually, a meaningful amount of the funding received by a private equity firm comes from foundations or other funds supporting retirement plans, educational institutions or other organizations for whom the capital has an important purpose. Burdick said that must be understood and appreciated.

“When an individual portfolio company is supported by that capital, the risk profile for the chosen investments should be respectful of the origin of those funds,” he said.

The other problem, Burdock added, is simply one of ego.

“Another potential mistake is getting too caught up in the belief that as a PE-funded portfolio company, the team is now somehow a bunch of big shot,” he explained.

He has a warning for you: “You’re not. This partnership demands accountability from all the players.”

And the reason for that is simple:

“We are responsible for the wise investment of other people’s money.”

The Reality of the Drill Bit

For Burdick, personally, when he thinks of his success, his growth in the industry, including his success with PE funding, he remembers the great adage of the real estate profession: location, location, location.

“I can’t imagine a better blessing than to have been a young East Coast-educated geologist who got to begin his career in the town of Midland, Texas! You learn something special in Midland. The landscape may be bleak, but the people are world-class. Literally,” he related.

He believes that is because so many people who presently live in Midland – a place he calls “Ground Zero” – have actually lived all over the world and bring a wealth of knowledge and experience. There is a culture, he said, of, “Let’s solve this problem” as opposed to one of “Who can we blame because things aren’t working?”

“Energy is the recipient of investment dollars from all over the world, with Midland being no exception. Perhaps it is the collective experience of recurring boom and bust cycles that gives the oil patch in Texas, and elsewhere, the insight to embrace opportunity with gusto. It is not an atmosphere of waiting around – it is one, quoting Larry the Cable Guy, of ‘get ‘er done!’”

Through his career, Burdick has always cautioned to keep an agile mind, to keep open the possibility that goals, however soundly articulated, should be open to face new realities.

“Geologists are very quickly humbled by the realities of the Earth. Our exploration models are just that – models,” he said. “The drill bit forces us to accept the hard truths of model shortfalls.”

At that point, those truths call out for answers – and they can usually be found in the data.

“Some of the most successful people I know in this business are the ones who can gather and comprehend new data quickly, and improvise a solution that was never a part of the original plan,” said Burdick.

He said this ability can be applied to everything from making real-time decisions out on a drill rig to reacting to new opportunities in personal career options. One of the ways to hone this skill, he suggested, is to put yourself in situations where you can practice this skill, especially in non-critical volunteer opportunities.

Ultimately, he said, in terms of private equity funding, there’s no magic 8-ball.

“The key is honesty from the get-go. First, be honest with yourself. Who are you? What do you need in a business relationship and what can you tolerate or not tolerate? Second, spend time being very thoughtful about the people in the PE firm you are hoping to partner with … and know that they are doing the same with you,” Burdick explained.

Nobody, he said, can afford to have a personality train wreck during the relatively short life of a PE-backed portfolio company, so it is important to do your homework up front to try to prevent having a personality conflict ever entering into the equation.

“There is really no special sauce here. It’s the deliberate effort to understand the firm, their existing investments, their people while keeping in mind your people, your business plans and your abilities,” he said.

There is also, along with the “can do” and “git ‘er done”-attitude, the matter of patience and thinking long term.

“It may be years before you embark on this journey, but that doesn’t mean you shouldn’t spend time now building the relationships,” said Burdick.